Fitch Ratings Affirms Mediacom's IDR at 'B'; Outlook Remains Stable.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the 'B' Issuer Default Rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) for Mediacom Communications Corporation (Mediacom) and its wholly owned subsidiaries Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. Mediacom LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control and Mediacom Broadband LLC (see complete listing of ratings affirmed below). Approximately $3.1 billion of debt as of March 31, 2007 is affected. The Rating Outlook for all of Mediacom's ratings is Stable. Fitch's ratings reflect Mediacom's relatively high leverage and an operating profile that continues to lag behind comparable cable multiple system operators. Fitch points out that while Mediacom has been successful with growing its revenue generating unit (RGU RGU The Robert Gordon University (Aberdeen, Scotland) RGU Responsible Governmental Unit RGU Revenue-Generating Unit ) base and expanding average revenue per user (ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. ), the growth has failed to generate the operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. necessary to strengthen EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become margins and grow free cash flow. From Fitch's perspective, Mediacom has struggled to find a balance between pricing promotion, product positioning and customer connection activity, which has contributed to its relatively weak operating performance. Additionally the ratings incorporate the ongoing business risk attributable to Mediacom's credit profile stemming from the persistent competitive threat from direct broadcast satellite (DBS (Direct Broadcast Satellite) A one-way TV broadcast service from a communications satellite to a small round or oval dish antenna no larger than 20" in diameter. ) operators. However Fitch expects that Mediacom's triple play service offering will enjoy a first to market competitive advantage as Fitch does not anticipate the deployment of the incumbent telephone companies' video service to be widely available within Mediacom's service footprint. Fitch believes that the competitive threat posed by the incumbent telephone companies presents more of a medium-term risk to Mediacom. The ratings are supported by a stable liquidity position and Fitch's expectation of further revenue and RGU growth and service diversification coupled with a continued penetration of Mediacom's triple play offering. Fitch expects Mediacom to continue to close the existing penetration rate differential between its high speed data, digital video products and triple play service offering take rates with that of industry norms. Fitch believes that Mediacom's telephony launch and its triple play service offering certainly enhances the company's competitive positioning and clearly focuses Mediacom's marketing efforts on service bundles. In Fitch's view, the service bundling strategy used by Mediacom is appropriate and the company should continue to focus on up-selling subscribers that take analog video The original video recording method that stores continuous waves of red, green and blue intensities. In analog video, the number of rows is fixed. There are no real columns, and the maximum detail is determined by the frequency response of the analog system. service only, as a subscriber that takes multiple services is less susceptible to competitive offers. At the end of first quarter-2007, Mediacom's leverage metric on a consolidated basis was approximately 7.1 times (x), which was in line with the year-end (YE) 2006 metric, but reflects a modest improvement from 7.5x as of YE 2005. Interest coverage metrics continue to erode as interest expense related to the company's variable rate debt increases. During 2006 and for the latest twelve month (LTM LTM abbr. long-term memory ) period ended March 31, 2007, Mediacom was a net user of cash as free cash flow deficit in 2006 totaled approximately $33.3 million and for the LTM period ended March 31, 2007 the company's free cash flow was negative $29.2 million. Fitch expects that modest EBITDA growth coupled with nominal amount of free cash flow generation will produce somewhat lower overall debt levels and a leverage metric approaching 6.5x by the YE 2007. From Fitch's perspective, Mediacom's liquidity profile is stable and is supported by the $635.9 million of collective unused and available borrowing capacity from the company's revolver and the modest amount of scheduled maturities of the ratings horizon. For the balance of 2007 approximately $55.9 million of bank debt is scheduled for amortization. Fitch does not expect Mediacom to satisfy the scheduled amortization from free cash flow generation. The 'RR1' Recovery Rating assigned to Mediacom LLC and Mediacom Broadband LLC's senior secured credit facilities indicates superior recovery prospects, which are based on the asset coverage of these loans. The 'RR5' and 'RR6' Recovery Ratings assigned to the senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. issued by Mediacom Broadband and Mediacom LLC respectively reflect the diminished recovery prospects of bondholders at this level of the capital structure driven by the large amount of senior secured debt ahead of these bonds in the capital structure. The Stable Outlook incorporates Fitch's expectation that Mediacom's operating metrics, including subscriber growth, ARPU, revenue and EBITDA growth, will modestly improve during 2007 but will continue to lag behind its MSO (1) (Multiple System Operator) Typically refers to a cable TV organization that owns more than one cable system, but it may refer to an operator of only one system. peer group. Fitch expects that operating margins will remain relatively flat during the near term as the company continues to struggle generating operating leverage necessary to increase margins and cash flow. Fitch notes that the company has approximately $39 million of remaining capacity under the board authorized share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program and the share repurchases thus far have been debt funded. Incorporated into the Stable Outlook is Fitch's expectation that the company will not become more aggressive with its share repurchase policy. Fitch has affirmed the following ratings with a Stable Outlook: Mediacom --Issuer Default Rating (IDR) at 'B'. Mediacom LLC --Issuer Default Rating (IDR) at 'B'; --Senior unsecured debt at 'CCC+/RR6'; --Senior secured debt at 'BB/RR1'. Mediacom Illinois LLC Mediacom Arizona LLC Mediacom Indiana LLC Mediacom California LLC Mediacom Minnesota LLC Mediacom Delaware LLC Mediacom Wisconsin LLC Mediacom Southeast LLC Zylstra Communications Corporation --Issuer Default Rating (IDR) at 'B'; --Senior secured debt at 'BB/RR1'. Mediacom Broadband LLC --Issuer Default Rating (IDR) at 'B'; --Senior unsecured debt at 'B-/RR5'; --Senior secured debt at 'BB/RR1'. MCC (The Microelectronics and Computer Technology Corporation, Austin, TX) The first high-tech research and development consortium in the U.S., created in 1982 by leading companies within the electronics industry. Georgia, LLC MCC Illinois, LLC MCC Iowa, LLC MCC Missouri, LLC --Issuer Default Rating (IDR) at 'B'; --Senior secured debt at 'BB/RR1'. Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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